And So The Margins Race Toward Zero

May 19th


Yahoo! & Associated Content @ Yahoo! Video

The backfill content business model has had a great run over the past 5 years, but with today's announcement of Yahoo! acquiring Associated Content, it certainly feels like it is getting toward the beginning of the end for that model for most folks.

  • Demand Media has grown eHow aggressively & struck partnerships with the likes of USA Today, and has recently been in the news about looking to do an ~ $1.5 billion IPO. If you look at Richard Rosenblatt's past sales you will see that he is quite good at selling right at the top.
  • Former Googler Tim Armstrong rebuilt Aol around their internal SEED platform which targets content at longtail arbitrage opportunities & leverages their premium Google ad feed.
  • Associated Content struck deals with companies like Thomson Reuters, Cox Newspapers, Hachette Filipacchi and USA Today. And they just landed a $90 million payday in the sale to Yahoo!

Yahoo! still has north of 10% search marketshare and can probe new & trending content ideas in real-time, while also using their huge distribution to market the new features. The fast data and instant distribution likely double the value of the business model for them. Take average content, tie it to a trusted brand, and immediately give it huge distribution and you have a winning formula. Assuming Yahoo! does a good job of integration this is probably one of their better acquisitions.

About a year ago a friend told me he bought some Yahoo! stock and I told him I thought he was nuts, but if I saw signs of decent integration of this content then I think they just increased their longevity of their company probably by a decade or more. And the part of this model which works great is that they view this content not as a replacement for their premium content, but as a backfill for the keywords they would like to target which don't have enough demand to pay for premium content creation. Some of the smarter independent webmasters have long understood that part of publishing profitably online means having featured content which loses money but builds awareness, and a second bucket of content which leverages that reputation to profit. That understanding is where the term "linkbait" came from, but now the big companies are playing the same game.

Here is a list of Aol properties, and as soon as they show strong profit growth you can bet they will use their stock to purchase more sites

You could put up similar network maps for the likes of Expedia, BankRate, Yahoo! subdomains, Monster.com, etc. etc. etc.

If Google continues to keep the algorithm fairly similar over the next couple years (ie: overall domain authority = relevancy panacea) it is pretty obvious what is going to happen to a lot of online categories. They will get watered down search by search as these publishing companies reinvest profits into creating a second, third, or fifth site in profitable categories.

If many people are using the same approach that will often create opportunities for other approaches. The good news for the average webmaster is that as the bland one size fits all approach (based on domain authority) gains momentum is that it will likely force Google to adjust. And it will make people become more loyal to great sites when they find them. As such general purpose sites grow I almost think it adds value to sites which look a bit unpolished and look like they are created from am amateur hobbyist. Thoughts? What say you?

Published: May 19, 2010

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Comments

May 19, 2010 - 3:47pm

This is great news for corporate America. There is just one problem. The customer does not want this. The customers are not stupid (most of them anyway). I don't know how it will shake out but not the way these corporate types and Google think it will.
I agree that unpolished sites with real content and value will flourish.

May 19, 2010 - 4:53pm

I think you give consumers too much credit ;)

  • something like 1 in 3 consumers does not even know that there are ads on the search page (in spite of Google now being a $100 billion company)
  • further, those who are aware of the basics of ads are not likely to understand the whole supply chain and value chain, or how certain businesses warp it to their own benefit (even if it means delivering a lower quality product to consumers)

Until someone *really* challenges Google in search (and Bing's lack of focus on longtail means not them - unless they change strategy) there will likely some more pain before it gets better. The only way that changes significantly outside of the above is if search as a whole gets challenged by another concept, or if too many of the downstream contextual + display ad Dollars start being monetized by non-Google networks to the point that it starts harming the Google business model.

May 19, 2010 - 4:41pm

Do you have any thoughts on the may day update in Google? We've got hundreds of car dealer websites that have traffic dropping. The long tail is obviously affected. We can't generate unique content for every car listing page. Any ideas of what we could do?

May 19, 2010 - 4:45pm

It sounds like you know what you need to do...likely replace a "can't" with a "can" and then push from there ;)

And link building might be needed too.

May 19, 2010 - 8:18pm

Thanks for your answer!

May 19, 2010 - 9:00pm

Cynically I'd say that Google would prefer trusted mediocre content that's to a consistent standard than higher-risk, high quality content.

And that's because most internet users really are stupid. Or short on time. Or simply too inexperienced to see what's going on.

They accept what's written on a website without question. For example, you and I know that Wikipedia is often mediocre, rewritten content, and that's meant to be an 'authority' site' - there are endless other 'lesser' sites with even worse 'rewritten' content or casually thrown together backfill content that rank and therefore get visited. Junk becomes the norm and users expect no different.

The internet has become mediocre, and the few shining stars DO stand out. Everyone's chasing the pot of gold but they don't want to put the work in. So they don't.

'Mediocre' is a safe bet for Google. No risk.

Meanwhile high-quality sites that churn out high-quality information are going to get it stolen and turned into mediocre backfill so there's also not much incentive for webmasters to be top-quality. And only a few can build up real relationships (many transactions are one-off or very infrequent) or reach critical mass in spread, depth and barriers to entry.

Eugh. Shame on Google for pretending to be anything other than a money-making machine.

Love the nearly invisible sponsored ads. you mentioned not so long ago. We're going back to the dinosaur search engines that chased money at all costs.

End rant.

May 20, 2010 - 4:57am

"The good news for the average webmaster is that as the bland one size fits all approach (based on domain authority) gains momentum is that it will likely force Google to adjust. And it will make people become more loyal to great sites when they find them. As such general purpose sites grow I almost think it adds value to sites which look a bit unpolished and look like they are created from am amateur hobbyist. Thoughts? What say you?"

This is the type of website that I've been working on/hustling over the past few years so I'm banking on it paying off for me in the end. One problem though is monetization, the money just isn't the same for this type of site as one that drives shoppers to it (people looking to spend). The CPM / display market right now is pretty dismal so the money for a site that attracts 1 million uniques a month vs 1 million for some sort of shopping portal (for example) are at opposite ends of the money stick. Although I'm not very fond of this type of monetization (and the industry-wide garbage that goes with it), I think it can play to my favor too since it discourages competitors somewhat. If the money isn't there, why bother continuing to create good, solid content?

May 21, 2010 - 6:44pm

If the money isn't there, why bother continuing to create good, solid content?

Because you love & believe in what you do.

May 20, 2010 - 10:42pm
May 21, 2010 - 7:04pm

That first article was painful to read through. It was like 6 pages long and probably should have been no more than 1! ;)

The second article was painful in its bias, but likely at least a bit more accurate than the first. :D

May 26, 2010 - 12:50am

"About a year ago a friend told me he bought some Yahoo! stock and I told him I thought he was nuts, but if I saw signs of decent integration of this content then I think they just increased their longevity of their company probably by a decade or more."

Hi Aaron, just cant help but comment on this.

If you thought buying Yahoo! stocks was nuts (which probably implies youd think of it as a bad investment in terms of ROI & risk associated with it (I assume)), have you leveraged your knowledge of search&the web before to make profits in the stock market?

Or do you know of anyone who does that?

Please, dont misunderstand this, Im not trying to be overly critical(exp?), its just my curiosity!

May 27, 2010 - 8:34am

A couple years ago Yahoo! warned in the middle of a quarter. A couple days before that warning I felt their stock was frothy and wanted to buy put options on it. I funded the account and made the application but eTrade only approved me to buy call options...so as I went to make the trade I couldn't. A couple days later when that announcement came out I cringed at missing out on 6 figures ... which is what that trade would have amounted to in profits. The thing that annoys me about that (non)opportunity is that it wasn't one of those cheesy "I should have cause I had an idea" sorta trades, but it was one I legitimately tried to make but couldn't due to eTrade options limitations.

I have bought a company's stock where I thought it was artificially low based on sentiment & based on a lot of investors not understanding an alternative high-margin counter-cyclical revenue stream the company had. But it was an arbitrage & momentum sort of trade of a company which is poorly / incompetently ran. It went up like 30% + in under a week and I sold it. It then dropped down and bounced around.

I also bought Google stock day 1 feeling it was under-priced, but outside of selling it a few years later overall I have sorta tread water trading stocks. About a year or so ago my wife reminded me how great our online stuff was doing and that given how gamed the stock market is we are probably best off ignoring it.

We have done investor due diligence research on some companies which were later bought out (some private some public). I never traded on any of that information, but it would have been profitable to do so, I am uncertain of the legality of it though...so we didn't. Plus my wife's tip is spot on...unless you are trading options stocks are about trying to gain 10% here and 30% there ... with web stuff you can do stuff that is 10x here and 30x there ;)

May 28, 2010 - 1:53am

really interesting stuff - thanks for the thorough reply! I decided to ignore the stock market, too (I actually made a couple 1,000 Euros as a teenager buying internet stocks :D..through my Dad...however had to come to the realization that I wouldn't be able to repeat that, but that I might be able to become similarly interested nad passionate about a similar field where the odds of success are far better (I remember all those stock market analysts who hadn't outperformed the market in years..thinking "great they study this in college, spend all their time learning about it, and in the end they're just as successful as someone who buys a replicate of the S&P 500 index!).

Admittedly, I cant tell for sure how many % of the people who are serious about the stock market (not hobby traders/investors) make a good living in it, but based on my (admittedly anecdotal(exp?)) observations, it just seemed like a bad choice.

But in the end money isn't the "end goal"(exp?lol) in life, but maximizing happiness is, and I believe after someone is rich anyway (actually I do believe that money can buy you happiness to a certain extent as it can buy you things that will make you happier; just that there's a diminishing point of return) and can buy pretty much all of the stuff he wants, for some (highly successful) SEOs they might get more out of the thrill of mastering a new challenge (making it in the stock market).

interesting to hear that the ROI in the stock market still pales in comparison like that,t hough!

June 2, 2010 - 7:49am

The biggest problem I see is the user-generated content craze that has been going on. I feel that any search I make looking for information on something leads me to this garbage.

Tonight was a great example. I was running some searches on Ibuprofen and how much you could safely take in a day. Now my results consisted of Yahoo! Answers, Answers.com, AnswerBag, Wisegeek, eHow, and a dozen or so sites that just scrape the Ibuprofen page off Wikipedia or some other site and rank because they have a strong domain. Not one of those sites have expert opinions or research. Just bored people who are looking for attention or "points" from a site for answering questions.

It would seem like they would need to move these sites into a different aspect of search. They let you search news sites, blogs, so why not user-generated sites? Or answer sites? Then drop those others from the search results so we can get information from actual authorities on the topic.

To see how bad this has gotten, even charities are jumping in on the fun. Livestrong has turned their site into a giant scraper site that targets major keywordss while running ads everywhere.

June 2, 2010 - 9:37am

You just inspired a Livestrong follow up :D

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